Claiming a relative as a dependent

Baltimoresun.com's tax-advice column features three experts from the Sparks accounting firm SC&H Group answering questions about preparing your return every Monday until April 15.

Mia, Texas: My sister, who lives in Arlington, Va., is separated from her husband. She keeps the kids full time -- he only keeps them every other weekend. He pays for her living expenses currently as she does not work. He wants to know if she wants to file taxes jointly this year or separately. Since she doesn't work, wouldn't it behoove him to still count her as a dependent? Would she benefit in any way by filing separately? He is planning to claim the kids as dependents on his return regardless. Does this mean the kid's tax credit checks would come back to him? My sister's fear is that he would keep that money and not ever use it for the kids.

SC&H Group: Generally speaking, most couples will pay less tax if they file joint returns due to tax rates and limitations of certain credits and deductions for married taxpayers filing separately. As a spouse, your sister would not qualify as her husband's dependent; instead she receives a personal exemption. The personal exemption amount for your sister would be the same regardless of whether she files a joint or a separate return (assuming her husband's adjusted gross income is not high enough to phase out the exemption). If they are legally separated, they cannot file jointly.

If your sister's husband claims their children as dependents, then he will also receive all associated credits and rebates for the children. If your sister has no income at all, then she would not be eligible for her own stimulus rebate. The children's rebate would be credited to both of them on a joint return, and the check would be issued in joint name. Since she likely has no reason to agree to file jointly, other than allowing her estranged husband to save taxes and receive a larger tax rebate this summer, perhaps some negotiation is possible.

Carol, Malden: Do you need to have earned income to qualify for the tax rebate? My mother's only income is from Social Security, so would she be eligible for this rebate? If so then I will file a return for her.

SC&H Group: Your mother may qualify for a rebate, provided she can't be claimed as a dependent on someone else's return. The recent economic stimulus law contains a special provision that allows Social Security recipients, who might not normally file a tax return, to count those benefits towards the earned income requirement. Your mother should file Form 1040A, write the words "Stimulus Payment" across the top of the form, and report her 2007 Social Security benefits. The IRS Web site, www.irs.gov, has a special section on stimulus payments with information on who qualifies, a rebate calculator, a projected schedule of payments and more.

Sandra, Boone, N.C.: Can I claim my mother as a dependent if I provide 50 percent or more of her care?

SC&H Group: There are four tests that must be met in order to be classified as a qualifying relative which would entitle you to claim your mother as your dependent. The four tests are: relationship, gross income, support and dependency.

1) Relationship -- The individual must fall within one of the following relationships:

• A child • Brother, sister, stepbrother or stepsister • Father, mother, stepfather, stepmother, grandmother, grandfather • Son or daughter-in-law, sister or brother-in-law, nieces, nephews, aunts and uncles • An individual that for the tax year has the same principal place of residence as you and is a member of your household

2) Gross Income -- The individual must have less than $3,400 of gross income for the 2007 tax year ($3,500 for 2008). It is important to note that any income excludable from the claimed dependent's gross income (exempt interest, disability, certain social security benefits) is disregarded.

3) Support -- More than half of the dependent's total support must have been furnished by you.

4) Dependency -- The individual must not be the qualifying child of another taxpayer for the tax year.

In addition to these tests, an individual cannot be claimed as a dependent if they file a joint return with their spouse.

Since we are talking about your mother, you would qualify for the both the first and the last tests. Therefore, if your mother had less than $3,400 of gross income for 2007 and you provided more than half of her total support you would be entitled to claim her as your dependent as long as she is not filing a joint return with her spouse.

Answers to selected questions are published in The Sun's Money & Life section on Sundays and online on Mondays.